"IR35" is the name commonly used to refer to a piece of tax legislation which came into force in July 2000. It was introduced with the aim of preventing the avoidance of tax. IR35 applies if your contractors are working for a client through an intermediary (like a PSC) and in reality, they work in the same way as an employee of the client. IR35 considers the underlying nature of your working relationship with a client.
In our October 2014 Newsletter we told you about the changes we have made to our IR35 review service, and we're pleased to say that the service has settled in well. The profile of IR35 continues to increase - the final report on the administrative review of IR35 has recently been released.
In 2010, the Office of Tax Simplification (OTS) was asked to review IR35. The OTS concluded that IR35 should either be suspended with a view to abolishing the legislation or retained but with improved administration; they opted for improved administration. The IR35 Forum was established and has already overseen a number of changes, including updated guidance and the strengthening of HMRC's specialist compliance teams.
The report summarises the recommendations made to HMRC, including:
- HMRC will continue to update the IR35 guidance pages on Gov.uk and raise awareness and understanding on IR35. HMRC are considering providing information on IR35 to any company start-up/registration or arranging for clear signposting to the relevant Gov.uk IR35 introductory guide.
- The Business Entity test is still set to be abolished in April 15 and HMRC will ensure this is widely publicised.
- In respect of HMRC's contract review service, they are thinking about offering a qualified view (which is not guaranteed) even if they don't have all information on the circumstances; for example, they have not received the contract between the agency and end client.
- During the course of an IR35 enquiry, HMRC will provide an email address for individuals to submit information and documentation to speed up the process. HMRC has also agreed to inform the individual if the end client is to be approached as a matter of courtesy.
It is very important for contractors to take advice on their IR35 status at the beginning of any assignment and at regular intervals during the assignment. If HMRC decides to raise an IR35 enquiry, it's much more difficult for contractors to respond if they haven't taken advice at the time. For example, it may be difficult for them to remember 'what went on' if the assignment ended a year ago.
Our Compliance Team are on hand to provide your contractors with advice. Please take a look at our webpage for further information.